Product R&D, taste testing, and material distribution are labor and time-consuming activities. For example, in order to launch their "rice with beef and vegetable" dish, Yonghe King's nutritionists tested at least 50 kinds of rice to determine the rice with the best appearance and taste. Chatea's R&D budget to make food production professional, simplistic and chain-operable is more than $1 million per year.

Pressures from huge competition costs and R&D budget are not hard to feel. Caught between impatient and fussy patrons and continuously climbing property costs, the restaurant industry is looking for an opportunity to take a breath and contemplate where it would like to go next.

Healthcare chains expedited

Do not assume VC only sees Internet and hi-tech on their radar. Healthcare chains are another potential battleground.

In February 2006, the desk of Jiamei Dental Chairman Liu Jia was cluttered with cooperation proposals, written in polite and modest language, from ICBC Credit Suisse, Citibank, Carlyle and 3i Group.

"I don't like to read English," said Liu. Once he made this comment, the 22-person investment team of ICBC Credit Suisse immediately prepared a Chinese version of the proposal overnight. Wondering what was going on, this Chinese owner of a small business, who had nothing to do with the capital market in the past, truly felt his significance.

At that time, Jiamei Dental, with 33 clinics, occupied the top position among privately owned dental care chains. The size of the first runner-up was less than half of Jiamei's.

Four months earlier, Liu's problem was trying to hide his ignorance, such as how to assess the P/E ratio, in front of VC investors loaded with buzzwords. Today, Liu believes his problem boils down to which to choose. "Abandoning any of them is not an easy thing."

"Jiamei's current business model and market prospects are sufficiently good," Liu said. This is the reason why Jiamei Dental has caught the attention of investors.

"As of today, healthcare reform is not able to satisfy everybody, and consumer health and medical service demand continues to increase," said Orchid Asia Group Management Vice President Wen Yu. He believes there are enormous investment opportunities in the healthcare sector. The "Orchid Asia Phase 3" fund, with capital in excess of $180 million, is aimed at investing in China's consumer and service industries with high thresholds and high growth potentials. The healthcare sector is earmarked as the top choice.

Chinese residents' healthcare spending to GDP ratio increased from 2.5 percent in 2002 to 8 percent in 2005.

"Chain operation will be the main development trend of China's healthcare service sector going forward," concluded Chen Xinhua of Zero2IPO after studying the industry.

"VC investors favor specialty healthcare chains because of their lower risks compared with the more risky general hospitals, not to mention the higher thresholds and returns," he said. "The ease of cloning causes the VC to believe the enterprise can establish their scale advantage expeditiously."

However, from the profitability and brand establishment standpoint, the difficulties for healthcare organizations are much bigger compared with other industries. In addition, the establishment of a brand is usually a much longer journey. At present, the healthcare market is an uncontrolled mixed bag. It is crucial to its future performance whether an enterprise can build a good brand name in this environment.

Meanwhile, China's government healthcare institutions monopolize a large number of qualified technical healthcare workers. Without good healthcare professionals in large numbers, privately owned healthcare organizations are very difficult in getting a license and starting business operations.

Leisure fitness chains gain attention

"It is expected that, after the 2008 Olympic Games, consumption power will be rapidly released and the sports industry in China will enter its golden period," said Wei Jizhong, President of the Beijing Olympic Economy Research Institute.

Currently, the yearly output of the sports industry worldwide is more than $400 billion, trending at an annual growth rate of more than 20 percent. By comparison, the total output of China's sports industry is only around several dozen billion yuan. The development of the industry requires a consumer group of corresponding size. At this stage, China's sports consumption demand and capability are still at the accumulation stage, but it's ready to take off any time.

In the United States, there are more than 20,000 large and medium-sized fitness clubs. In China, there are only about 1,000. The current unsaturated market in China provides excellent opportunities for fitness club operators.

Behind opportunities are risks. Investment requirements in the sports industry are relatively high. Nirvana Fitness invested up to 50 million yuan in just one location. The cost of a mid-level fitness venue, though not as high as Nirvana, is still beyond the tolerance of ordinary investors, not to mention the long payback period. The consumer group for such facilities is also constrained by age and income. Therefore, development in this sector has not been as vigorous as some had thought it would be. After all, an annual membership fee of thousands of yuan is not something ordinary people can afford.

In small and medium-sized cities, where consumption levels are lower, fitness club development is even slower. Many believe this industry does not have the potential for massive participation. But, as the living standards and the pursuit of a better quality of life increase for Chinese citizens, fitness and exercise will become part of the daily life of many ordinary people.

(Xinhua Finance)